Financing costs have dictated that in order to transact, where sellers have to kind of have an expectation that rates are going to be higher for longer, meaning that cap rates are going up, excuse me. And therefore the value of their real estate is going down.
Brian Dickman : And I’ll just add to that, which I think is implicit in what Chris is saying, is something we’ve talked about before, the nature of the sale leaseback business, which is our primary origination platform versus just aggregating assets from a variety of sellers. Our counterpart, when we’re sitting across the table from somebody, they’re not just looking at a price to sell an asset and what return that generates for them or does not, right. These are our finance professionals that are raising capital, right, for their companies, for new store growth, for acquisitions, for technology initiatives, whatever it may be. So they’re making — we are making real estate investments, but they’re making financing decisions, right.
And so they’re looking at their financing alternatives. And sale leaseback financing is just one of those, and we happen to be particularly competitive in that area today. So as long as our cost of capital, or in turn their cost of capital, allows them to meet their hurdle rates, right? We can find opportunities to transact. But I think the main point you’re hearing from all of us is that there’s some transparency in our discussions, right? And given our relationships, our knowledge, what we’re saying to these tenants, look, our costs are going up. We’re open for business. We can transact. Has to meet our real estate underwriting expectations. And it has to meet our pricing expectations. And we’ve had some success, certainly over the last year, and being able to drive those conversations to transact.
Unidentified Analyst: Fair. So just on that point, are all the different asset classes in our pipeline seeing similar kind of price pressure? Or is it different for different categories?
Brian Dickman : This is Brian. I think it’s really driven by where we are in our life cycle with the different asset classes. So certainly car wash and CNG, where we are going direct to those tackles frequently. And primarily, you see that the most. Our experience with this [inaudible] our relationships, as we just entered that sector, say within the last 18, 24 months. And QSR, we’ve really just started dedicating efforts to within the last 12 months. So we’re still working to build up those relationships so that we can have those conversations. So it’s a long way of saying, probably see it more in Car Wash and CNG, and we’re getting there at auto service. And in QSR, we’re still sort of making our way through, ramping up in that sector so that we can, again, drive that type of activity.
Unidentified Analyst: Okay. Thank you. And just the last one from me. You mentioned that the pipeline is fully funded, and part of that was the term loan. So do we have any expected timeline for the second trench of the term loan?
Brian Dickman : Yes, it’s going to be within the next six months right because that’s the term of that. And as always, we’re looking to balance funding the transactions, maintaining our leverage profile, maintaining liquidity. So between that and the equity, we’ll draw on each of those pools as it makes sense to maintain the balance sheet. And that’ll occur over the next six months.
Christopher Constant: Operator, are there any more questions on the line?
Operator: Okay. It does look like we have one more, Akhil Nagulapalli from JP Morgan.
Akhil Nagulapalli: Hi, good morning. This is Akhil from JP Morgan. My first question is on how does the cost of a sale lease back compared with your operators, other financing alternators right now?
Brian Dickman : I think your question was how does the pricing of a sale lease back compare to the various other financing alternatives that our tenants have? And what I’d say is that most of our tenants being private, large, regional, or national operators, their access to capital is generally private equity or the bank market or private lending market. All of that has gotten more expensive and tougher to transact. But frankly, so I think what we’re seeing is a lot more underwriting opportunities where sale lease back probably looks a little more attractive to our tenants. With all that said, I think that we maintain a fairly rigorous underwriting process here and a focus on real estate and tenants and property all the way down to the property level. So I don’t think it necessarily changes our view of what’s attractive or not, but I’d say that sale lease back certainly looks more appealing to the tenants today than it did probably six, nine months ago.
Akhil Nagulapalli: Understood, yes, one last question. How much opportunity do you think is there in the car wash business as operators consolidate locations in that space?
Christopher Constant: Yes, I think car wash was a sector that had a lot of capital flowing into it over the last several years. Obviously, the view of the tenants in that space, there is a lot of room for new store development as the express tunnel model takes share from traditional car washes. Again, our view in that space has been that we want to be with large established operators who have a track record of operating as well as growing in the sector. And I think we’ve done a pretty good job with that in terms of picking our relationships there. Again, we’re focused on not only providing capital to the sector, but really partnering with the right tenants long term in the car wash space. And I do think you’re going to see some consolidation there. And again, our view is that our tenants are going to do well in this environment and the product continue to grow whether that’s new store development or it’s remnant.
Operator: This concludes our question and answer session. I would like to turn the floor. back over to Chris Constant for closing comments.
Christopher Constant: Great. Thank you, everyone, for joining us for our third quarter earnings call. We look forward to getting back out to everybody when we report our fourth quarter and full year results for 2023.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
